Corporate Tax Dodgers Spending Big on CEO Pay, Lobbyists

Joel Anderson |

Romney's private equity firm Bain CapitalThe release of Mitt Romney's tax return has renewed a debate that Warren Buffett raised last year when he pointed out that, because of the way income from investments is taxed, he paid a lower tax rate than his secretary. President Obama further called attention to this issue by inviting Buffett's secretary to the State of the Union last night.

However, the ability to dodge paying the top tax rate extends not just to individuals, but corporations as well. Many American companies use the tax code's loopholes to dodge paying any of the 35 percent corporate tax rate entire. All the while, beneath the debate lies the underlying question of how money influences politics in America and how that, in turn, affects businesses and the economy.

Low Taxes for High CEO Payers

In November of last year, two left-leaning think tanks, Citizens for Tax Justice and the Institute on Taxation and Economic Policy, released a study showing that 30 US companies were paying no taxes with many even receiving money from the federal government.Major American corporations like General Electric (GE) and Boeing (BA) avoided paying any taxes between 2008 and 2010 (though Boeing rejected the claim through a spokesman).

Companies use a variety of different corporate loopholes to avoid paying the full 35 percent that have seeped back into the tax code after Ronald Reagan managed to push through legislation that swept away such tax breaks in 1986. Companies were able to use write offs for accelerated depreciation on equipment, deductions for executive stock options, and for making products in the United States instead of overseas.

Where is all this money going if not to the Federal Government? One area could be CEO compensation. A study from the left-leaning Institute for Policy Studies released in August of last year revealed that 25 of the 100 highest paid CEOs in America were earning more money than their company was paying in Federal taxes in 2010.

Among others, GE's Jeff Immelt earned $15.2 million while GE received a $3.3 billion tax refund, Boeing's Jim McNerney received $13.8 million while Boeing paid only $13 million in taxes, and eBay's (EBAY) John Donahoe made $12.4 million while the company received a $131 million dollar refund.

Corporate Loopholes Avoiding Taxes

While some may be horrified by this sort of data, there are many outside of the Occupy Wall Street movement who will defend these elements of the tax code. Many would argue that lower rates of taxation for investment income can spur the flow of capital into the economy and and benefit economic growth while corporate deductions are most often based on legitimate need and free up money for growth and hiring in some of America's biggest companies.

However, the picture does grow murkier when one considers the amount of money being spent by these corporations on lobbying. A recent study by researchers Raquel Alexander and Susan Scholz of the University of Kansas School of Business, reported on NPR's Planet Money, showed that companies spending on lobbyist are more than getting their money's worth.

The study showed that for every $1 spent on lobbyists around the 2004 American Jobs Creation Act, corporations could expect $220 in tax breaks, a return of 22,000 percent. Supporting this is a study from Public Campaign, a corporate watchdog group, that cited 29 corporations that paid more to lobbyists than they did in federal taxes between 2008 and 2010. Once again, General Electric lead the way, paying out over $80 million to lobbyists between 2008 and 2010 while receiving $4.7 billion in rebates. PG&E (PCG) also lobbied heavily in the same period, spending $79 million on lobbyists while securing a $1 billion tax rebate.

2012 Elections Could Focus on These Issues

The debate over the most effective methods for stewardship of the American economy look to rage on throughout the year as both parties prepare for the 2012 elections. Groups like the Occupy Movement and the Tea Party should ensure that concerns over the influence of money on politics and the structure of the tax code will continue to be a central focus for some time to come.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GE General Electric Co 31.78 0.25 0.79 26,846,417
PCG Pacific Gas & Electric Co. 59.33 0.14 0.23 3,533,239
WNRL Western Refining Logistics LP representing limited 20.55 0.15 0.74 92,414
EBAY eBay Inc. 29.97 0.55 1.85 12,520,267
VZ Verizon Communications Inc. 51.49 0.36 0.69 8,136,361
WFC Wells Fargo & Company 57.12 -0.17 -0.30 18,610,281
BA Boeing Company (The) 156.43 1.04 0.67 2,405,606

Comments

Emerging Growth

Sack Lunch Productions Inc

Sack Lunch Productions Inc is an entertainment company. The Company, through its subsidiaries, is engaged in event management, production service, film production and distribution services.

Private Markets

MyForce, Inc.

As parents, we constantly worry about the safety of our loved ones. The media bombards us with incidents from across the nation school shootings, frequent assaults on campuses, and crimes…

XY Find It

Founded by serial entrepreneur Arie Trouw, XY Findables follows a single guiding principle: customers should never lose anything important again. With over 50,000 users around the world, more than 100,000…